May 9, 2023, 14:00–15:00
Room Auditorium 4
Macroeconomics Seminar
Abstract
We incorporate race into an overlapping-generations spatial-equilibrium model with neighborhood spillovers. Race matters in two ways: (i) the Black-White wage gap and (ii) homophily— the preferences of individuals over the racial composition of their neighborhood. We find that these two forces generate a Black-White college gap of 22 percentage points, explaining about 80% of the college gap in the data for the St. Louis metro area. Counterfactual exercises show that the wage gap and homophily explain 7 and 18 percentage points of the college gap, respectively. A policy of equalizing school funding across neighborhoods reduces the college gap by almost 10 percentage points and generates large welfare gains.